How long can you stay afloat if you become seriously ill?

Polling shows around half (47%) of employed 18-64 year olds can’t survive for more than a month after using up their sickness and annual leave if they fall seriously ill and can’t work.

The Horizon Research survey for the Financial Services Council (FSC) finds more than 1,000 families a week - 54,800 a year - experience a sickness that prevents a main income earner from working for three months or more. 

The study finds an average family needs $683 per week to make up for a main income earner in the household not being able to earn because of sickness.

For a family with dependent children the maximum Job Seeker Allowance (previously the sickness benefit) is $340 a week.

The survey found most people (51% of 18-64 year olds) did not know a partner’s income of $30,000 or more would preclude them receiving all or part of the Job Seeker Allowance.

One in five New Zealanders wrongly thought ACC covered all long term sickness not just those related to long term work place exposures.

The FSC sponsored a  “Mind the Gap” seminar at Auckland on November 17 to help inform New Zealanders of their financial vulnerability in the event of long term illness preventing employment and what can be done about it.

In 2010 the FSC commissioned Massey University to identify the under insurance gap in New Zealand. It concluded income protection insurance was the personal insurance product most people needed but were least likely to hold. The industry responded by introducing simpler products and better explanations of the benefits. Coverage of income protection has gone up from about 20% to now 26% of households in this latest Horizon survey, said FSC CEO Peter Neilson (pictured below).

By comparison, around 80% of households have a vehicle insured, 70% have home and contents coverage and 60% have their homes insured.

Part of the explanation comes from many people not realising their lifetime income is their most important asset.

An income of $50,000 a year over 40 years comes to $2 million, much more than the value of most homes. Unprompted, when asked what their most valuable asset is, most (45%) of Kiwis (18-64) say it is their home.

Kiwis also typically underestimate their likelihood of being off work for a long period caused by sickness.

Most New Zealanders (60%) think they have about the same or greater likelihood of being off work long term following an accident rather than following sickness. In fact for the population as a whole is 2.2 times more likely to be off work for six months or more from sickness compared with an accident. For employed 18-64 year olds it is 1.8 times more likely.

“The new polling is a bit of a wake-up call and helps partly explain the relatively low take up of income protection insurance by only 26% of households,” said Mr Neilson “These key facts will be distributed to people who work alongside those living with long term illness. Health workers, social workers and budget advisers will be able to give good advice based on this evidence.

“We hope they will also start a conversation at the Mind the Gap seminar and in the wider community about how we can protect the financial security of families when a main earner has a long term illness that prevents employment.”

Some families will cope by using social security benefits, ACC, previous savings or by selling assets.

For others, income protection insurance that maintains most of your income following sickness will be needed said Mr Neilson.

Over the past five years only one in eight of the households struck with long term illness had income protection insurance in place when it happened. The income gap following sickness needs filling and income protection insurance is one of the means of doing so, Mr Neilson said.

New Zealand herald coverage of the issue is here.